Business Standard round table: Focus on social sector will not dilute industry-friendliness

Sunil Parekh, founding curator and mentor of the Global Shapers Initiative, World Economic Forum (WEF); Firdose Vandrevala, executive vice-chairman, Essar Steel; Amit Patel, Group Managing Director, Sintex Industries Ltd.; Pankaj Patel, Chairman and Managing Director, Cadila Healthcare (Zydus Cadila); and G Raghuram, Professor - Public Systems Group and Dean - Faculty at the Indian Institute of Management, Ahmedabad (IIM-A), met at the Business Standard Gujarat Round Table to discuss the topic 'Gujarat Under New Leadership'. The discussion, organised in Ahmedabad, was moderated by A K Bhattacharya. Edited excerpts:

In the last 10 years, under the leadership of now Prime Minister of India Narendra Modi, who was the state's chief minister until May this year, Gujarat has created a place for itself as a leading industrialised state and as a model for growth and development. But with PM Modi moving to Delhi in May, the state saw its women and child welfare minister Anandiben Patel becoming the chief minister.
 
The question that arose following the leadership change was whether the focus on industrial growth will change or has changed. This formed an ideal premise for a panel discussion that comprised industry representatives, academics as well as an industry-social think tank.

While inaugurating the discussion, Saurabh Patel, Gujarat's minister of finance, energy and petrochemicals, stated that the growth focus remains unchanged. The panel discussion, therefore, attempted to take a contrarian view and asked whether the focus had changed or not. The panelists also deliberated on issues like land reforms, SMEs, migrant labour and other labour issues, among other things.

While some panelists agreed there had been a shift in focus by the new leadership led by the state's first woman chief minister, others chose to disagree, stating that the government was following a set trajectory.

Beginning the discussion was Sunil Parekh, who maintained that the focus had not shifted despite Gujarat lagging in HDI indices for a long time. "The last 10 years have seen acceleration in reduction of all the negativity. The government's efforts have had a neo-liberal paradigm of supporting industrial growth and as a result of that growth, the taxes hence earned will be redistributed for social justice through a dedicated governance model," he stated. In fact, Parekh argued that the idea that emphasis on the social sector would dilute the focus on industrial growth was unfounded.

Though maintaining a neutral view, G Raghuram expressed concern that the level of "detail in thought towards the social sector" did not matchthe level of detail in thought towards industry. He called for a "mission mode approach to the social sector".

Disagreeing with Parekh, Firdose Vandrevala drew attention towards recent state budget allocations as a precursor of what is to come. "The focus has changed. If you see the budget, there is an increased allocation towards the social sector," he said, adding, "What is industry? It is a means to an end and not an end in itself. Industry is meant to improve the quality of life."

Seconding Vandrevala, Amit Patel of Sintex commented that the though there has been a change in growth focus by the government, it was a welcome change. "A gradual change towards uplift of the state in the right direction is always welcome," he said, adding that the state needs to ensure that everybody lives above the poverty line, apart from raising other social indicators.

However, Pankaj Patel of Cadila Healthcare opined that the change in leadership hasn't changed the state'sdirection. "Obviously there is a change in leadership and the new leader thinks about women more. But are things changing? No. There are new things for industry in the budget and a commitment to come out with an industrial policy. It is a balanced approach," said Pankaj Patel, adding that there was also no major change in the government's focus on the SME sector, except for some additional schemes.

Even as Vandrevala wondered why SMEs had not prospered in Gujarat despite its entrepreneurial roots, Parekh critiqued the regime's policies, which forced SMEs to remain SMEs. "The moment you graduate out of being an SME, you lose the benefits," Parekh said, adding that many SMEs preferred to remain small, in order to avail of these benefits.

While Vandrevala and Pankaj Patel suggested the state could take a cue from Germany, where over 50 per cent of GDP came from SMEs, Parekh said "SMEs by nature do not aspire to become big," adding that SMEs contributed less than 15 per cent of Gujarat's industrial output of '11 lakh crore last year.

All the panelists alike agreed that SMEs in the state should be incentivised to innovate and pay more attention to value addition.

The discussion on SMEs also raised questions on whether the labour force, especially migrants and their skills, were an issue and education was missing in Gujarat. Raghuram of IIM-A said that skills were an issue at two levels: high-end managers and entrepreneurs, as well as lower-rung jobs. "We need a big thrust towards skills in Gujarat," he added.

Pankaj Patel, however, stated, "As industry we should realise that we will not get 100 per cent skilled manpower. We will have to train them and give them some kind of orientation before they begin."

Part of the skill problem in Gujarat for Vandrevala was dependence on migrant labour. However, Amit Patel argued that with local workers from Gujarat being well-off, there is greater absenteeism, thereby increasing dependence on migrant labour.

Vandrevala called for a change in mindset towards SMEs, which are typically seen as labour-intensive, offering the example of SMEs in Germany. "In Germany, SMEs are high on R&D, technology and innovation, and the employment comes because there are several of them, not because one unit employs lots of people. In this sense, Gujarat is well poised for what SMEs should be and what they can do," said Vandrevala.

On incentives for SMEs, Raghuram felt that schemes where, above a certain level, an SME stood to lose all incentives was not a good idea. "There must be continuity in benefits. You may start reducing the support (for SMEs) as they grow bigger," he argued. But, disagreeing with Raghuram, Parekh gave the example of Japan, which in the 1960s and 1970s experimented with a scheme and saw minimal impact, and then reversed the scheme. "Then Japan experimented with the reverse, where the bigger an SME grew, the higher was the incentive, which motivated them to grow further," he said.

Finally, the discussion moved into two major aspects of Gujarat's growth story that could become constraints for the new leadership - labour trouble and land acquisition. Raghuram agreed that labour would be an issue for Gujarat, necessitating proper policies. With regard to land, Raghuram felt that the Gujarat government was more proactive in terms of having a land bank where industry can come in, though it could further develop the coastline in terms of land reforms.

Commending Gujarat for its good track record in labour and attributing this to both labourers and employers, Pankaj Patel said that he does not foresee an environment that could cause labour problems resulting from entrepreneurs' aversion to sharing their wealth with workers through higher wages. "I find more practicality in handling labour issues in Gujarat than anywhere else," he added.

Amit Patel said both labour unions and employers in Gujarat were willing to sit across the table to negotiate. He also agreed that land acquisition would be a problem for the state government, but said special zoning could be implemented to ease land acquisition. "It will give more market-determined prices," he added.

For Vandrevala, growing migrant labour is set to have an impact on the social fabric in Gujarat. In terms of land, while Vandrevala seconded Raghuram's proposal for developing land around the coasts, he also wanted the state government to pursue better utilisation of land by converting captive ports into commercial ports.

Talking about land reforms, Parekh said, "The zoning atlas of Gujarat is ready. Also, creation of new cities of 250 sq km called SIRs on the DMIC is a major step towards resolving industry's need for getting well-connected land, which will augur well for industrial development."

Finally, all panelists alike agreed that the next challenge for Gujarat will be value addition. However, they were hopeful that the state's new leadership has taken notice of this and will address the need for it.